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(Kitco News) -
Indian banks are asking the Reserve Bank of India (RBI) to create a new regime for silver metal loans similar to the existing framework for gold metal loans (GML), according to a report from the Economic Times published Friday.
Silver exports are a large and growing sector of the Indian economy, representing ?25,000 crore ($3 billion) last year, a 16% increase from the previous year. India is also the world's biggest importer of silver.
The report quotes a bank executive as saying that domestic silver manufacturers and exporters are asking banks to extend credit for silver purchases so they can meet the burgeoning demand. "It was decided to raise this issue with the Reserve Bank of India (RBI) in a meeting last month," he said.
Under the 2015 Gold Monetisation Scheme (GMS), authorized commercial banks are allowed to import gold, and can then extend gold metal loans (GML) to jewelry exporters or domestic manufacturers of gold jewelry. The loans are normally repaid in rupees equivalent to the value of the gold borrowed, but if the bank allows, borrowers can also repay a part of the GML in physical gold in lots of one kg or more.
Another bank executive quoted in the report said that it would make sense to have a similar regulatory framework for silver, as the silver jewelry manufacturing cycle faces the same kinds of price and operational risks as those of gold jewelry.
"There is annual growth of around 14-15% in this segment,” he said, “and it's best if we have a similar framework as that for GML.”
A research report from ANZ cited weakening demand from China and India as contributing a short-term drag on silver prices and noted that “Silver normally underperforms when the gold price is falling.”
ANZ said that in addition to selling by silver investors, they also saw slowing demand for the physical metal, added that India’s imports appear to be leveling off following an exceptionally strong 2022.
These headwinds have contributed to silver’s price underperforming that of gold, they said, with the gold:silver ratio “climbing from 78.5x to 85x” in May.
On Feb. 1, India raised total taxes on silver imports from 10% to 15% in an effort to align the duty structure of the metal with gold.
The basic customs duty on silver was raised to 10% from 7.5% and Agriculture Infrastructure and Development Cess (AIDC) on silver imports was raised to 5% from 2.5%.
